Trefis Helps You Understand How a Company's Products Impact Its Stock Price

COMPANY OF THE DAY : ADOBE

Adobe's stock has rallied from $31 in August 2012 to its current market price of over $70, a return of over 135% in the last two years. This rally coincides with the launch of Adobe's Creative Cloud, which contributes 57% of our price estimate for the company, and its rapid adoption among creative professionals. In a recent note, we discuss the factors that we believe will limit Adobe's valuation in the short term.

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FORECAST OF THE DAY : VERIZON'S U.S. WIRELESS MARKET SHARE

According to a recent report by RootMetrics, Verizon's wireless network remains the best in the U.S. in terms of network speed, network reliability, call performance and data performance. The company's upgraded XLTE network allowed it to build a significant lead in terms of speed. We expect the carrier's network advantage to allow it to defend its market share amid increasing price competition from smaller rivals.

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  • commented 2 days ago
  • tags: UTX
  • Why You Can't Ignore Mobile as Part of Your Marketing [Infographic]

    In 2013 Facebook, the company that brought more than 1.2 billion people together through social networking, made the majority of their ad revenue from mobile users. This breach of the 50% line marks an important milestone in the path from technological equality to mobile domination. In the fourth quarter of 2010, smartphones sales in the U.S surpassed PC sales and have been ahead since. It is officially more important to have a smartphone than to have a home computer.

    IDC estimates that by 2017, 87% of connected device sales worldwide will be smartphones and tablets surpassing both home and laptop computers.

    Mobile usage is growing at an exponential rate, with some estimates placing worldwide mobile connected devices at 10 million units by 2017. The domination of advertising, customer outreach, and utilization by the mobile market is unmistakable. It's expected that in 2014 the United States will cross the $100 billion mark in mobile data services revenue, all of which is being used to tweet, share, search for deals, and ultimately improve both the social and customer experience, and in many cases both simultaneously.

    According to a Comscore white paper from 2012, 1 in 5 smartphone users scan product barcodes, and nearly 1 in 8 will compare prices while right there in the store.

    The implications of this statistic are numerous:

    Smartphones have not only enhanced the retail game, but are changing it. Your prices have to be break-neck competitive. We now live in a world where a car shopper can check the true value of a vehicle right there in the lot.

    Price matching is no longer just among brick-and-mortar competitors. Many large conglomerates like Target offering services like Amazon price matching as well.

    As mobile devices continue to become a daily part of the process from discovery to sale, quick adaption must be implemented and quality mobile experiences must be offered to current as well as potential new customers. Great mobile experiences, whether it be an app or a website, are sure to please a customer and serve as an extension of the brand experience.

    Just as bad customer service can repel a customer, nowadays a negative mobile experience can have the same effect. Modern consumers want efficiency, quality, but most of all simplicity. In app purchased, use of QR codes, location based advertising, all are possible enhancements for the customer experience either after leaving the store or before arriving to it.

    There are some who are taking the mobile domination and using it to actually lower their costs. Apple for instance has customers use their smartphones for in-store purchases. Less staff are required on the sales floor and the fact that everyone has their smartphones out becomes a positive thing instead of a potential detriment. Healthy investment in mobile accounts and mobile marketing are essential and will only become more unavoidable as mobile use increases.

    Take a look at this infographic for an impressive breakdown of just how mobile the market has become and all the myriad ways in which mobile utility has become an integral part of the consumer lifestyle. The potential for generating revenue from mobile marketing investment is only going up; so make sure you're taking full advantage of the tools at your disposal. Start by reading "Mobile Market Domination."

    [ less... ]
    Why You Can't Ignore Mobile as Part of Your Marketing [Infographic] In 2013 Facebook, the company that brought more than 1.2 billion people together through social networking, made the majority of their ad revenue from mobile users. This breach of the 50% line marks an important milestone in the path from technological equality to mobile domination. In the fourth quarter of 2010, smartphones sales in the U.S surpassed PC sales and have been ahead since. It is officially more important to have a smartphone than to have a home computer. IDC estimates that by 2017, 87% of connected device sales worldwide will be smartphones and tablets surpassing both home and laptop computers. Mobile usage is growing at an exponential rate, with some estimates placing worldwide mobile connected devices at 10 million units by 2017. The domination of advertising, customer outreach, and utilization by the mobile market is unmistakable. It's expected that in 2014 the United States will cross the $100 billion mark in mobile data services revenue, all of which is being used to tweet, share, search for deals, and ultimately improve both the social and customer experience, and in many cases both simultaneously. According to a Comscore white paper from 2012, 1 in 5 smartphone users scan product barcodes, and nearly 1 in 8 will compare prices while right there in the store. The implications of this statistic are numerous: Smartphones have not only enhanced the retail game, but are changing it. Your prices have to be break-neck competitive. We now live in a world where a car shopper can check the true value of a vehicle right there in the lot. Price matching is no longer just among brick-and-mortar competitors. Many large conglomerates like Target offering services like Amazon price matching as well. As mobile devices continue to become a daily part of the process from discovery to sale, quick adaption must be implemented and quality mobile experiences must be offered to current as well as potential new customers. Great mobile experiences, whether it be an app or a website, are sure to please a customer and serve as an extension of the brand experience. Just as bad customer service can repel a customer, nowadays a negative mobile experience can have the same effect. Modern consumers want efficiency, quality, but most of all simplicity. In app purchased, use of QR codes, location based advertising, all are possible enhancements for the customer experience either after leaving the store or before arriving to it. There are some who are taking the mobile domination and using it to actually lower their costs. Apple for instance has customers use their smartphones for in-store purchases. Less staff are required on the sales floor and the fact that everyone has their smartphones out becomes a positive thing instead of a potential detriment. Healthy investment in mobile accounts and mobile marketing are essential and will only become more unavoidable as mobile use increases. Take a look at this infographic for an impressive breakdown of just how mobile the market has become and all the myriad ways in which mobile utility has become an integral part of the consumer lifestyle. The potential for generating revenue from mobile marketing investment is only going up; so make sure you're taking full advantage of the tools at your disposal. Start by reading "Mobile Market Domination." [img width="800" height="4427"]https://s3.amazonaws.com/TFFInfographics/TFF-M2-MobileMarketDomination.jpg[/img]



    NWSA Logo
    Lower Advertising Income Weighs Over News Corp's Quarterly Results
  • by , 3 days ago
  • tags: NWS NYT
  • News Corporation (NASDAQ:NWSA) witnessed a 3% drop in its Q4 fiscal 2014 revenues (fiscal year ends with June). News and information services revenues declined by 6% amid lower advertising income. The company reported adjusted earnings of $0.01 per share as compared to $0.12 in the prior year period. While the company continues to see growth at HarperCollins and REA, print advertising remains a concern. The company recently completed the acquisition of Harlequin Enterprises from Torstar Corporation for $420 million. Harlequin Enterprises is a Canadian based company that publishes broad range of fiction including romance, relationship, psychological thrillers and women’s fiction. News Corp is aggressively eyeing online real estate advertising operations and it recently announced the purchase of a minority stake in iProperty for $100 million. iProperty is an online property and advertising operator in Southeast Asia. Overall, the company reported mixed results with double-digit growth in book publishing and digital real estate, while news and information service as well as cable networks faced some headwinds due to lower advertising income and currency fluctuations See our complete analysis for News Corporation Lower Advertising Income Weighs Over News And Information Services News and information services revenues declined 6% to $1.56 billion as compared to $1.66 billion in the prior year quarter. Segment EBITDA also plunged 38% to $131 million. This can be attributed to a 9% drop in advertising revenues and a 4% decline in circulation revenues. The decline in advertising was wide with a 16% drop in Australia and 1% in the U.K.  A decline in EBITDA can be attributed to the costs related to relocation of the company’s London operations for dual rent and higher expenses related to specific marketing initiatives in the U.K. It must be noted that the news and information services accounts for more than 40% of the company’s value, according to our estimates. The environment for print industry in particular is challenging. As Internet penetration continues to expand, users increasingly get access to free and abundant information online. We believe that the continuing trend could keep putting a downward pressure on circulation prices and advertising income. The company in its recent earnings call stated that revenue from non-advertising sources will increase significantly over the next five years. This will provide stable growth outlook in the long run given the uneven trends in the advertising marketplace. We estimate advertising income will decline in the near term and forecast advertising revenues for news and information services will be around $3.7 billion by the end of our forecast period. Book Publishing And Digital Real Estate See Strong Growth Book publishing revenues increased 10% to $361 million while EBITDA jumped 50% to $33 million. The increase in revenues was primarily due to higher print and digital book sales, principally resulting from the continued success of the Divergent series by Veronica Roth. Higher EBITDA reflects the impact of operational efficiencies and higher contributions to profits from e-books. The revenues from e-book sales rose 23% and accounted for 22% of overall consumer revenues for the quarter. It must be noted that digital books have lower production and distribution costs than print books. We believe HarperCollins will continue to grow strongly as e-book sales pick up. Accordingly, we estimate the book publishing revenue to grow at an average annual rate of 5% and be north of $2 billion by the end of our forecast period. Digital real estate operations contribute close to 25% to News Corporation’s value, according to our estimates. It includes REA, which owns and operates Australia’s largest residential as well as commercial property websites. The segment’s revenues increased 24% to $113 million and EBITDA grew 35% to $62 million, primarily due to higher pricing and growth in premium products. Digital real estate operations offer high margins to News Corp (45% in 2013). A double-digit growth in this segment will be fruitful for the company in the near term. We expect continued growth in this segment throughout the forecast period. It will be primarily driven by the growth in Australia’s population, which is being reflected on the housing market. Moreover, the company is aggressively eyeing more assets in this space. Apart from iProperty, the company plans to add $50 million to its investment in SEEK Asia, which is into employment listings business. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    CREE Logo
    Cree Collaborates With Lextar To Continue Its Growth Momentum In LED Lighting
  • by , 3 days ago
  • tags: CREE TGOSY EPIS AGVO
  • Leading LED manufacturer  Cree (NASDAQ:CREE) made an investment of $83 million and entered into a supply agreement with Lextar Electronics Corporation for sapphire-based LED chips, last week. The companies also signed a royalty bearing license agreement for certain Cree LED chip and component intellectual property. Based in Taiwan, Lextar is a vertically-integrated LED company and has a strong technology position and customer base in the mid-power backlighting LED segment. Cree, on the other hand, offers outstanding performance in the high-power LED component and lighting market. Cree believes that becoming Lextar’s strategic customer in the lighting market will enable its continued growth in LEDs and lighting. Cree will purchase 83 million Lextar shares at a price of NT$30 per share. The agreement has been approved by the boards of directors of both companies and is targeted to close in Cree’s second quarter of fiscal year 2015, subject to other approvals and customary closing conditions.  Upon closing, Cree will become the second largest institutional investor in Lextar, owning approximately 13% of the company. The strong top line growth momentum combined with a strong balance sheet has given Cree the flexibility to respond to new opportunities in the market. The company currently has a cash balance of $1.2 billion and no debt. The general LED lighting market is expected to be the primary growth driver for the LED industry, as demand from the backlight market nears saturation. Cree has a fully integrated vertical business model and is the market leader in both LEDs and LED lighting products. This places the company in a strong position to leverage the global shift to LED lighting. LED lighting accounts for 15-20% of the global lighting market at present and the LED market share is expected to rise at a rapid pace over the next decade. Cree expects strong growth in LED fixtures and LED bulbs to drive growth in its lighting segment. To serve growth in these segments, Cree’s internal LED chip team is focused on high performance, high power LED chips that differentiate its LEDs in the market. Its LED manufacturing partners are focused on building some of the higher volume products, which gives the company the flexibility to utilize its internal factory to support new product ramps and shorten the time to market for new technologies. Lextar will provide Cree mid-power backlighting LEDs, which will enable Cree to focus its resources on high performance, high-power LED chips. The company believes that this arrangement gives it the operational and financial flexibility to achieve the best return on its people and invested capital. We expect Cree’s LED market share to increase over our review period. Our price estimate of $57.77 for Cree is at a significant premium to the current market price.
    BMY Logo
    Bristol-Myers Squibb Gets European Approval For HCV Drug Daklinza
  • by , 3 days ago
  • tags: BMY MRK JNJ
  • Bristol-Myers Squibb (NYSE:BMY) has received European approval for its Hepatitis C drug Daklinza (daclatasvir). The drug is effective across several genotypes of diseases and has shown cure rates of up to 100% when used in combination with Gilead Sciences’ blockbuster drug Sovaldi. Although Gilead Sciences did not partner officially with Bristol-Myers Squibb in clinical trials and instead wishes to use its own combinational therapy, the encouraging data of Daklinza-Sovaldi therapy could influence healthcare providers to go for this combination. At this point, it is not clear whether insurers will create obstacles in the path of reimbursing this combination. If that doesn’t happen, Bristol-Myers Squibb could add significant incremental revenues by targeting roughly 9 million HCV patients in Europe. Most of these patients are infected with genotype-1 of the disease, but that isn’t an issue as Daklinza works across multiple genotypes. The pricing is likely to be high considering that the drug helps in reducing treatment window and potentially mitigates patients’ risk of developing liver complications. Liver transplants resulting from these complications can be extremely expensive. Our price estimate for Bristol-Myers Squibb stands at $36, implying a discount of more than 25% to the market.
    QCOM Logo
    Possible EU Investigation Add To Qualcomm's Regulatory Problems
  • by , 3 days ago
  • tags: QCOM INTC NVDA BRCM
  • Qualcomm (NASDAQ:QCOM) occupies the top slot in the global mobile chipset market, which makes the company vulnerable to a rising number of allegations against it for abusing its market dominance and indulging in monopolistic practices. It is already facing the wrath of Chinese antitrust agencies and, if sources are to be believed, it may also face a European investigation related to a complaint filed by Icera in 2010. Icera, acquired by Nvidia (NASDAQ:NVDA) in 2011, filed a report with the European Commission (EU) in June 2010, accusing Qualcomm of  using patent-related incentives and exclusionary pricing of chipsets to discourage customers from doing business with Icera. If found guilty of breaching EU rules, Qualcomm could face a fine of up to $2.5 billion. Recently, EU upheld a record 1.1 billion euro fine against Intel (NASDAQ:INTC) for abuse of its dominant market position. Our price estimate of $74 for Qualcomm is almost in line with the current market price.
    ANF Logo
    Abercrombie & Fitch Slips Again; Plans To Remove Logo Products Altogether
  • by , 3 days ago
  • tags: ANF AEO ARO
  • Following a slight slowdown in its revenue decline in Q1 fiscal 2014,  Abercrombie & Fitch ‘s (NYSE:ANF) net sales fell by 6% in the second quarter, as it recorded its 10th straight quarter of comparable sales decline. The retailer’s shares stumbled by close to 10% after the earnings release as its revenue decline was worse than analysts’ prediction of 4%. Including direct-to-consumer revenues, Abercrombie’s comparable sales declined by 5% in the U.S. and 9% in international markets. Interestingly, the retailer’s online sales growth in the U.S. at 5% was much slower than what its counterparts have seen in the recently concluded quarter. This is not a good sign for Abercrombie. However, that comparable sales at  Abercrombie & Fitch were down just 1% was a bright spot in the otherwise lackluster Q2 results. The company stated that it has made significant progress in evolving the fashion component of its merchandise range, which helped its namesake brand’s results. Encouraged by this, the company stated that it will remove most basic logo bearing products from its U.S. stores by spring 2015. Over the last few years, U.S. buyers have shunned basic logo products at retailers such as American Eagle Outfitters (NYSE:AEO), Aeropostale (NYSE:ARO) and also Abercrombie, for more affordable and trendy brands such as Zara, Forever 21 and H&M. As a result, these companies have been slowly transitioning their portfolio to more fashionable non-logo range. Our price estimate for Abercrombie & Fitch stands at $39, which is about 5% below the current market price. See our complete analysis for Abercrombie & Fitch With its fashion doing well and logo business under performing, Abercrombie’s recent move makes sense. While customers weren’t showing significant interest in the retailer’s logo t-shirts, shirts and hoodies, they exhibited tremendous affinity towards its trendy jeans, dresses and skirts. The company’s COO, Jonathan E Ramsden, stated that they have seen tremendous improvement in their non-logo business over the past several quarters. Abercrombie has been working on improving its designs, shortening lead times and increasing style differentiation to offer a better variety of fashion assortments and remain responsive to changing trends. Abercrombie’s partnership with First Insight Inc has helped it test products before their launch and incorporate customer feedback in design. During the earnings call, Mike Jeffries commented that the company was selling fashion at a rapid pace, which has encouraged them to substantially reduce the proportion of logo products. Abercrombie is finally taking an aggressive step towards enhancing its fashion content, which has become the key to survival in the current retail environment. Mr. Jeffries stated that the company is looking to reduce its logo portfolio to “practically nothing” by spring next year. However, Abercrombie will continue to sell its logo products in international markets. While increasing reliance on fashion makes sense, Abercrombie runs the risk of losing customers if it decides to shrink its logo business to an immaterial size within a year. Although this transition is important, it needs to be at a pace that buyers are comfortable with. Such product overhauls haven’t been too successful in the past, which is evident from Aeropostale’s misfired fashion launches last year. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
    SBUX Logo
    Starbucks To Enter Into New Beverage Segments With Teavana & Fizzio Brands
  • by , 3 days ago
  • tags: SBUX PEP KO DPS
  • The American global coffee company, Starbucks Corporation (NASDAQ: SBUX) is one of the most recognized coffee brands in the world. The company has created strong brand awareness in major markets over the last decade. It currently has 20,863 stores in 64 countries, with nearly 13,900 stores in the U.S., Canada and Latin America. Apart from its renowned coffee stores, the company also owns and operates other brands such as Tazo, Seattle’s Best Coffee, Teavana, Evolution Fresh and La Boulange. In the latest third fiscal quarter report, Starbucks’ global comparable store sales rose 6% yet again, marking its 18th consecutive quarter with above 5% comparable sales growth. Each of the company’s reporting segments delivered excellent performance in Q3, leading to an 11% increase in revenues to $4.2 billion. The highlight of the company’s performance in the recent quarters is the company’s initiative of entering into new markets. In December 2012, Starbucks acquired Teavana brand and opened net 366 Teavana stores in fiscal 2013. The total net revenues of the company’s other beverage segment, which includes Teavana, Seattle’s Best Coffee, Evolution Fresh and Digital Ventures increased by $185 million in fiscal 2013, primarily driven by additional revenues ($156 million) from Teavana stores. In June 2014, Starbucks introduced Fizzio- the company’s brand of preservative-free, hand-crafted, cold carbonated beverages in nearly 3,000 stores in the U.S. The company is expanding its cold beverage portfolio with the addition of the Fizzio Hand-crafted Sodas and Teavana Shaken Iced Teas. We have a  $76 price estimate for Starbucks, which is 2% below the current market price. See our full analysis for Starbucks Corportion Starbucks is already one of the dominant forces in the coffee industry, with 13% of the single-serve coffee market, only behind Keurig Green Mountain (NASDAQ:GMCR). The company serves around 100 million U.S. customers daily, out of which 30 million prefer speciality beverages such as lattes, cappuccinos and mochas. With its tea segment and recently introduced cold carbonated beverage segment, the company is entering into lucrative markets with completely different target customers. However, years of marketing and advertising experience, well-recognized brand name and quality of products will provide an added advantage to the company. Both the new brands provide excellent platforms for the company to expand into bigger markets, apart from its coffee business. Tea Market: A $90 Billion Market In 2012, there were 160 million Americans who drank tea daily in any form-hot or cold, consuming a total of 3.6 billion gallons, or around 80 billion servings of tea in the whole year. Tea companies focus on the fact that over 80% of the tea consumption in the U.S. is iced. Over the last decade, the segment that showed the most growth was the Ready-To-Drink (RTD) segment. While the overall tea sales in the U.S. amounted to $10.41 billion in 2013, up 6.3% year-over-year, RTD tea remained the largest segment constituting almost half the net sales. Every year United States Department of Agriculture (USDA) reports per capita availability figures- an indication of consumption- for all the commodities. According to USDA report, per capita availability of coffee has been decreasing since the past 70 years and has been stable at around 6 gallons for regular coffee and 18.5-19 gallons for instant coffee over the last decade. The total supply for coffee rose only 13% over the last decade, whereas it rose around 42% for tea. Clearly, the suppliers are shifting more towards tea. We have discussed the growth potential in RTD tea market in our prior article. (see Dr. Pepper’s Much Needed Non-Carbonated Growth Could Come From Snapple Tea ) Starbucks’ CEO Howard Schultz mentioned in its recent Q3 earnings call conference that the company believes the tea market is worth $90 billion and this gives them incentive to transform this segment into a core segment in the long run. Starbucks recently partnered with Oprah Winfrey for a collaboration on a tea flavour and introduced Teavana Oprah Chai in the third quarter of fiscal 2014. The company’s new introduction- Teavana Shaken Iced Tea- also received great customer response. Starbucks long term goal is to combine Teavana’s experience in its merchandising with its own brand strength in the retail segment. Cold Carbonated Beverage Market: A Tough Market To Break Starbucks introduced three new carbonated drinks under its Fizzio brand- Spiced Root Beer, Golden Ginger Ale and Lemon Ale.  Unlike existing at-home carbonation products where the machine carbonates the water and flavours are added afterwards, Fizzio carbonated drinks are finished beverages, with every ingredient receiving same amount of carbonation. Moreover, Starbucks is also offering its customers an advantage to adjust their carbonation. Any beverage, which is not included in the hot beverage segment of the Starbucks menu can be ordered as carbonated through the company’s Fizzio’s machine for an extra 50 cents. According to our estimates, carbonated beverage segment constitutes 43% of the total Liquid Refreshment Beverage (LRB) market in the U.S and over 40% of the global beverage market. This segment is dominated by well renowned brands such as Coca-Cola (NYSE:KO) (42.4%), PepsiCo (NYSE:PEP) (28.7%) and Dr Pepper Snapple (NYSE:DPS) (17.5%). Evidently, carbonated beverage segment is a mature market with three major brands controlling more than 85% of the total market. Moreover, the market share of this segment has been decreasing for the past 5 years (from 47% in 2009 to 43% in 2013), with consumers shifting to non-carbonated drinks and sports drinks, due to health concerns. Starbucks would have a hard time establishing its brand at a large scale in this market. However, it is still a big market and will provide incremental revenues for the company with a steady growth. Since these refreshing cold beverages were introduced in summer,it will be interesting to see the consumer’s reaction on the new Fizzio drinks in September-ended quarter, which might set the tone for future of this segment. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    GMCR Logo
    Increased Portion Pack Prices By Keurig Green Mountain Might Not Affect Consumer Consumption Rate
  • by , 3 days ago
  • tags: GMCR SBUX DNKN KRFT
  • On August 14, the Vermont based K-Cups maker, Keurig Green Mountain (NASDAQ:GMCR) announced that it is raising prices by nearly 9% on all its single-serve portion packs and other traditional bagged, fractional packs and bulk coffee products, with effect from November 3, 2014. The company had kept its portion packs’ prices subdued for a long time, even when the competing coffee companies such as Dunkin’ Brands (NASDAQ: DNKN), Peet’s Coffee and  Starbucks Corporation (NASDAQ:SBUX), as well as coffee retail chains such as Kraft Foods Group (NASDAQ:KRFT), raised their prices a couple of months back. The company mentions its price increase to be a direct result of increasing price of green coffee and cocoa, as well as rising costs of packaging materials, energy and transportation charges. Since January, the prices of green coffee rose nearly 60%. Although the prices dropped down in the month of June, they are back on the rising trend. Moreover, the company has locked its entire coffee supply for 2014 and are 75% hedged for 2015, as mentioned in its latest quarterly earnings call transcript. However, the coffee’s bullish trend seems to continue, primarily due to prolonged drought in Brazil. According to the National Coffee Council, production in Brazil, world’s top coffee producing nation, may drop 18% year-over-year to 40.1 million bags when the harvest comes next month. Earlier this year, experts estimated global demand for coffee to be nearly 146 million bags, which might outpace supple by 7 million bags and might drive the price of Arabica beans to $3 per lb. See our full analysis of GMCR here In a competitive industry such as coffee, input costs makes a lot of difference to a company’s overall growth. Companies such as Starbucks, Dunkin’ Donuts and Peet’s Coffee have already announced the coffee price hike, due to sustained increase in the input costs. (see Starbucks raises coffee prices : Boost to margins and revenue growth ) Finally, Keurig Green Mountain decided to raise its portion pack prices, but the company is aware of the fact that consumers might shift to cheaper beverage options. However, to protect their customer base the company has taken some impactful measures: Keurig 2.0- the new improved brewer- has been recently released in the market Over the last six months, Keurig has entered into several distribution deals with some of the top retail chains and coffee brands, with the motive of accelerating its top line growth Distribution Deals With Major Coffee Brands Keurig Green Mountain has accelerated its pace in joining hands with major coffee brands and other retail chains such as Dunkin’ Brands (NASDAQ: DNKN), Peet’s Coffee, Starbucks Corporation (NASDAQ:SBUX), Nestle U.S. division and   Kraft Foods Group (NASDAQ:KRFT). These deals give the company an upper hand in the industry to widen its market share in the single-serve coffee segment. These brands constitute 75% of the total U.S. coffee consumption and have a huge customer base. Customers who like Maxwell House’s coffee, Starbucks’ premium coffee taste, Nestle’s creamer with their coffee or Dunkin’ Donuts coffee, inspite of going to the respective coffee outlets to get a cup would rather buy portion packs and enjoy their favourite cup of coffee at home. Thus, entering into partnership with the coffee giants will ensure that the customers owning the Keurig brewers will not be restricted to limited options. The Keurig consumers will now have options to select their favorite coffee brands, ensuring that the company sustains its loyal customer base. Moreover, a selective group of people, who does not own Keurig brewers and prefer convenience, might buy the new technology. In short, the timing of the price hike would not have been better, as the distribution deals might ensure the loyalty of its existing customer base. We have discussed the reasons and impact of these deals in detail in our prior article. (see Distribution Deals With Major Coffee Brands To Help Keurig Green Mountain Gain Market Share ) Keurig 2.0 To Attract More Customers On the other hand, the company released its most awaited product of the year- Keurig 2.0.  The timing could have been better, considering the distribution deals have attracted majority of the coffee lover’s interest in the portion packs. With Keurig 1.0 getting outdated and Keurig 2.0 offering numerous advantages over any of the previous editions, people with any interest in the company’s brewer might buy the newer improved version. This will not only increase the brewer sales, but will ensure the company’s dominance in the single-serve market as well. In short, Keurig Green Mountain’s decision to raise the price of its portion packs not only feels justified, but a well-planned move to sustain its customer base. If the company is successful with its plan, it might boost net revenues of the company without harming the customer base. Trefis estimates the average price of portion-packs in 2013 to be nearly 33 cents and estimated the price to rise to 34.5 cents by the end of 2014. This price rise of 1.5 cents per portion packs included higher priced creamer added portion packs, as well as other K-carafe packs and excluded any price hike due to rising input costs. With the price hike of 9% coming into effect from November, the effective price estimated at the end of 2014 comes down to 35 cents per portion pack and 37.6 cents per portion pack in 2015. As a result, Portion pack revenues are estimated to rise by 26% year-over year by the end of 2014 and will lead to a 3% upside to our valuation for the company. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) | Get Trefis Technology
    GES Logo
    Guess Cuts Outlook On Weak Traffic; To Close 50 Stores In North America
  • by , 3 days ago
  • tags: GES AEO ANF
  • Guess ‘s (NYSE:GES) shares slumped by almost 8% after it reported a 45% decrease in its Q2 fiscal 2015 earnings and slashed its third quarter and full year guidance.  Accounting for the disappointment are weak product performance and soft traffic. The specialty retailer now expects its full year earnings per share to be in the $1.05-$1.20 range, which is significantly less than its previous guidance of $1.40-$1.60. For the third quarter, Guess projected its EPS to be around $0.15-$0.20, dramatically below analysts’ estimates of $0.37. During its earnings call, the company stated that its fall collection hasn’t performed as expected, which could well subdue its third quarter results as well. Moreover, consistently declining store traffic in the U.S. on account of online shift will only add to Guess’s problems. In Europe, a sluggish economic environment will continue to impact consumer afford purchasing power in Italy and France, which are the retailer’s biggest markets in the region. With a significant decrease in demand, Guess’s European wholesale orders for fall and winters have declined at low-double digit rates. This will likely translate into another weak quarter for the retailer’s European business, which accounts for about 34% of its value as per our estimates. Due to its weak performance, the company has decided to consolidate its U.S. store network, which has become a prominent trend in the U.S. apparel industry lately. Following an analysis of its North American store fleet, Guess identified 50 stores to close during the next 18 months, that no longer generate sufficient store traffic. Closing them can have a slight positive impact on the retailer’s North American revenue per square feet and operating margins, but it will weigh on its revenue growth. Our price estimate for Guess stands at $32, implying a premium of more than 35% to the market price.
    GM Logo
    Stalling Cadillac Sales Is Bad News For GM
  • by , 3 days ago
  • tags: GM F BMW VLKAY TM
  • Profits in the auto sector are set to fall. The reasons behind this are the following Used car sales in the U.S., the second largest car market in the world, are on the rise. Since, these cars sell for low prices, automakers are being forced to offer discounts and incentives on new cars to remain competitive. A drop in average transaction price per vehicle sold reduces an auto company’s profitability. ( (Falling U.S. used-car prices will drive up new-car incentives, Reuters, August 2014)) In recent years, most of the gains in the U.S. auto market have come from the luxury car segment. However, the trends within the luxury car segment are such that the total segment has been unable to grow faster than industry wide sales. Consumers, benefiting from generous lease programs and incentives, are preferring to buy smaller luxury cars. This is also impacting the profitability of car companies. Most of the growth in the global auto market is expected to come from the emerging markets. Sales growth in these markets is driven by smaller cars. The margins on these cars is usually lower than on sedans and SUVs. The European auto market has been struggling. Many car companies have had to cut capacity in the continent and are now focusing on the small car segment to drive growth. As a result, the scope for profits from the region has declined. A number of companies have had to recall cars due to a variety of defects. Costs associated with recalls are unplanned expenses and act as a drain on planned investments. These costs include not only costs associated with repairs and refitting of faulty parts but also penalties imposed by regulatory authorities and litigation costs associated with damage caused to consumers. As a result, car companies are being forced to look at other opportunities for improving their margins. Some companies, like Volkswagen, Toyota and Ford, have tried to bring all their global production under one platform. The rationale behind this trend is that using standardized production methods not only allow them to lower the marginal cost of production but also allow them to reduce the difficulty of the recall and repair process, should it need to be carried out. Apart from cost cutting, the other path being followed by companies in the search of higher margins is the increasing weight of luxury cars in their sales mix. Consider Volkswagen for example: the German automaker’s luxury brand Audi contributes nearly 40% to its operating profits and has an EBITDA margin of nearly 22%. The heavy presence of Audi in its sales mix means that the company is able to post EBITDA margins of nearly 12%. (See our full analysis of Volkswagen AG here ) General Motors (NYSE:GM) has been trying to follow a similar strategy since 2012. The U.S. based auto maker has been working hard to revitalize its premium car brand Cadillac. Reviving sales of Cadillac can help GM reach a pre-tax margin of 10%, nearly 2 percentage points higher than its current pre-tax margin of just under 8%. For a while, it looked like GM might achieve its targets. However, Cadillac’s sales growth ran out of momentum towards the end of 2013. In the first quarter of 2014, Cadillac sales fell by more than 7% in the U.S. Even though Cadillac has introduced several new models, sales have failed to pick up. We have a  $40 price estimate for General Motors, which is about 18% higher than the current market price. See full analysis for General Motors New Model Launches In 2012, the Cadillac portfolio was down to just three models- the CTS mid-size car, the SRX crossover and the Escalade SUV. Towards the end of the year, the company launched two new models- the XTS full-size sedan, which targeted Cadillac’s pre-existing customer base, and the ATS compact sedan, a car designed to be competitive with the popular German compact luxury cars. The introduction of these two cars worked like a charm for the company, making Cadillac the fastest growing luxury brand in the U.S. Even though the sales of the CTS, Escalade and SRX were either falling or stagnant, overall Cadillac sales grew by about 22% in 2013. Cadillac’s sales momentum began flagging towards the end of fiscal 2013 and deliveries have continued to fall ever since. For the month of July, ATS volumes fell by 11% and XTS volumes fell by 34% compared to the previous year. On a year-to-date basis, ATS sales are down by nearly 21% and XTS sales are down by 24%.  Both these models performed well in their first year but it appears as though demand for both models peaked last year. The decline in sales can be explained by what the models set out to achieve: the XTS was targeted at Cadillac’s pre-existing customer base and it is clear that that market does not have room for continued growth; the ATS was launched to steal market share from German luxury makers and this is proving difficult for GM. So far this year, BMW has sold over three times the number of cars sold by Cadillac and Mercedes has sold nearly twice that number. Outlook Surprisingly, Cadillac’s older models have all posted gains in the number of unit sales in 2014, with the Escalade SUV the biggest gainer at a sales growth rate of 35% on a year-to-date basis. GM launched a re-modeled version of the Escalade late last year. The model refresh has been extremely successful and sales of the model have nearly doubled so far this year. GM now holds 37% market in the large luxury SUV segment. Another Cadillac model to post a sales increase this year has been the SRX crossover, which is benefiting from the surging popularity of small utility vehicles. However, GM might not be able to cash in on this trend as small utility vehicles will be one of the last segments to be refreshed by the company. Cadillac is expected to offer a redesigned SRX for the 2016 model year. GM also has plans to introduce 2 more Cadillac crossovers around 2017. The luxury crossover market is booming but GM has decided to focus on updating other models before its SUVs and crossovers. Consequently, it is hard to foresee Cadillac posing a credible challenge to the likes of BMW, Mercedes and Audi. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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